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5 Semiconductor Stocks to Buy on Rising Data Center Demand

Growth in demand for cloud services fueled by coronavirus-induced work-and-learn-from-home necessity and increased usage of online services globally have compelled data center operators to bolster their cloud-storage capacities. This has further boosted demand for data-center chips from data center operators.

Per Technavio report, the data center market is expected to grow to $519.34 billion during 2021-2025, at a CAGR of 21%, driven by the growing clout of cloud services and digitization. Further, increase in adoption of multi-cloud and network upgrade to support 5G is fueling growth.

In fact, semiconductor companies, including Advanced Micro Devices AMD and Taiwan Semiconductor Manufacturing Company Limited TSM delivered impressive performance in the first quarter driven by strength in data center vertical.

Growth Prospects Aplenty

Evolution of semiconductor manufacturing processes from 10 nanometer (nm) to 7 nm to 5 nm and even 3 nm technology is opening new business avenues. The accelerated deployment of 5G technology is anticipated to spur further growth.

Additionally, momentum in high performance computing (HPC) applications, gaming, wearables, drones and VR/AR devices due to the coronavirus crisis, which has led to increase in usage of online services globally, is fueling massive growth in the semiconductor space. It is projected to hit $522 billion in 2021, indicating growth of 12.5% on a year-over-year basis, per IDC data.

Moreover, improvements in DRAM and NAND pricing are acting as tailwinds for semiconductor stocks catering to the memory market.

Further, spike in worldwide sales of semiconductors buoys optimism. Notably, per data from The Semiconductor Industry Association (SIA), global semiconductor industry sales were $123.1 billion in first-quarter 2021, up 17.8% on a year-over-year basis.

The optimism surrounding semiconductor stocks can also be ascertained by the robust performance of iShares PHLX Semiconductor ETF (SOXX) on a year-to-date basis, which has rallied 15.3% compared with the SPDR S&P 500 ETF’s (SPY) rise of 13%. Further, SPDR S&P Semiconductor ETF (XSD), which tracks the S&P Semiconductor Select Industry Index, has gained 5.2% year to date.

Considering growth prospects of the chip makers driven by data center boom and HPC push, it makes sense to invest for long-term gains. Here we present five stocks to invest in at the moment, considering growth prospects of the chip makers driven by data center boom and HPC push.

Year To Date Performance

Image Source: Zacks Investment Research

Our Picks

NVIDIA NVDA is benefiting from the pandemic-induced work-from-home and learn-at-home wave. The company is poised to gain from a surge in hyperscale demand, which is a tailwind for this Zacks Rank #1 (Strong Buy) company’s Data Center business. You can see the complete list of today’s Zacks #1 Rank stocks here.

Further, the Arm acquisition is expected to aid NVIDIA in offering end-to-end ecosystem of technology across the data center, IoT, autonomous vehicles and mobile domains. NVIDIA is now well positioned to upscale its inference technology, drivers and accelerators by utilizing Arm’s sturdy architecture and chip designs.

The Zacks Consensus Estimate for fiscal 2022 earnings has moved 18.5% north in the past 60 days to $15.84 per share. The figure indicates growth of 58.4% on a year-over-year basis.

Microchip Technology Incorporated MCHP is benefiting from increase in demand for XpressConnect family of low-latency PCI Express (PCIe) 5.0 and Compute Express Link (CXL) 1.1/2.0 retimers. New ultra-low-latency signal transmission technology is required to advance the performance in AI, ML, Advanced Driver Assisted Systems (ADAS) and other computational workload applications as the high-performance computing demands of data center workloads increases.

Moreover, solid momentum of Microsemi’s solutions in Data Center, and Communications end-markets is favoring this Zacks Rank #2 (Buy) company’s top-line growth.

The Zacks Consensus Estimate for fiscal 2022 earnings has increased 5.6% in the past 60 days to $7.87 per share. The figure indicates growth of 19.4% on a year-over-year basis.

Micron MU is gaining from solid memory-chip demand among data-center operators as more and more workers and students work and learn from home amid coronavirus-led social-distancing measures being adopted globally.

Furthermore, it is well poised to benefit from the resurgence in DRAM demand, backed by a progress in customer inventory adjustments in the cloud, graphics and the PC markets. Increasing mix of high-value solutions, enhancement in customer engagement and improvement in cost structure are positives.

Growing demand from cloud-computing providers and acceleration in 5G adoption are also contributing to the performance of this currently Zacks Rank #2 company.

Digitization across industries, increased uptake of cloud computing and services, and the integration of AI and machine learnings are likely to fuel demand for Micron’s chips.

The Zacks Consensus Estimate for fiscal 2021 earnings has been revised 1.3% upward in 60 days’ time to $5.55 per share, suggesting 96.1% growth from the figure reported in the year-ago quarter.

Advanced Micro Devices is gaining from growing demand for Instinct accelerators across cloud and HPC customers, which is driving growth in Data Center GPU business.

For second-quarter 2021, this Zacks Rank #2 company expects robust sales across all its businesses to drive year-over-year increase in revenues. Meanwhile, the sequential increase is projected to be led by growth across data center and gaming verticals.

The Zacks Consensus Estimate for 2021 earnings has been revised 11.9% upward in 60 days’ time to $2.16 per share, suggesting 67.4% growth from the figure reported in the year-ago quarter.

Maxim Integrated Products, Inc. MXIM is an original equipment manufacturer of semiconductor analog and mixed-signal integrated circuits. The company has a broad product portfolio that includes analog-to-digital converters, amplifiers and comparators, communications devices, data converters, and management components, sensors and wireless products.

This Zacks Rank #2 company is benefiting from increased adoption of highest performance solutions for data center and enterprise servers.

The Zacks Consensus Estimate for 2021 earnings has been revised 5% upward in 60 days’ time to $3.13 per share, suggesting 38.5% growth from the figure reported in the year-ago quarter.

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Micron Technology, Inc. (MU): Free Stock Analysis Report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Microchip Technology Incorporated (MCHP): Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report
Maxim Integrated Products, Inc. (MXIM): Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM): Free Stock Analysis Report
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